November 16, 2004
PBGC Announces $23.3 Billion Deficit at End of Fiscal Year 2004
On November 15, the Pension Benefit Guaranty Corporation (PBGC) released its fiscal year 2004 financial results. The 2004 report showed a one-year net loss of $12.1 billion in its single-employer pension program and year-end deficit for the entire program of $23.3 billion, up from $11.2 billion noted in 2003. The PBGC stated it is now responsible for the benefits of more than 1 million workers and paid benefits in 2004 totaling more than $3 billion.
In reaction, American Benefits Council released a media statement from President James A. Klein noting that "today's announcement is not a reason for panic, but instead is a firm call for Congress to thoughtfully address the pension system's profound funding issues when the new session convenes next year. The PBGC has ample assets to pay promised benefits for many years to come. But, this is a long-term problem that cannot be ignored. Funding rules need to be strengthened. The long-term fiscal integrity of the PBGC depends on the health of the pension system itself. Financially healthy employers must have certainty about the rules governing the pension system in order to be encouraged to continue sponsoring these plans."
As the Council noted in its June 2004 paper Pensions at the Precipice: The Multiple Threats Facing our Nation's Defined Benefit Pension System, the defined benefit pension plan system now faces a unique and unprecedented confluence of threats including attacks on hybrid defined benefit plans, the failure to permanently replace the obsolete 30-year Treasury bond rate for pension calculations, a flawed pension funding regime, and the movement to impose "snapshot" accounting standards.
For more information on defined benefit system issues, contact Diann Howland, Council vice president, retirement policy, at (202) 289-6700.
Treasury and IRS Release Proposed Regulations on Administration of 403(b) Plans
The Treasury Department released on November 15 significant and highly anticipated proposed regulations on the administration of section 403(b) retirement annuity contracts. Contained in the proposed regulations are changes to these programs' plan documents, their interaction with ERISA, the definition of a health and welfare agency for use under catch-up contribution rules, use in conjunction with life insurance contracts, and allowances for exchanges and transfers of contracts. In addition, the Treasury Department also released a set of temporary regulations clarifying how employment taxes should be applied to section 403(b) contracts.
The Council also posted links to the news release announcing this guidance and a summary of their contents provided by the Benefits Group of Davis and Harman. A further review of these rules from Council staff will be forthcoming.
These proposed rules would be applicable for tax years beginning after December 31, 2005, following a transition period. Treasury officials have requested written comments to the proposed rules, which may be submitted by February 14, 2005. A public hearing on this issue is also scheduled for February 15, 2005, in Washington, DC.
For more information on these regulations, please contact Jan Jacobson, Council director, retirement policy, at (202) 289-6700.
The American Benefits Council is the national trade association for companies concerned about federal legislation and regulations affecting all aspects of the employee benefits system. The Council's members represent the entire spectrum of the private employee benefits community and either sponsor directly or administer retirement and health plans covering more than 100 million Americans.